Starting January 1, a person can give up to $20,000 to as many people as they like during 2027 without filing a gift tax return for those gifts. The Internal Revenue Service raised the annual gift exclusion by $1,000 from this year’s $19,000 as part of its yearly inflation adjustments.
The change matters most for parents and grandparents who help family members with cash, a down payment or year-end checks. A married couple can together give $40,000 to each child or grandchild in 2027 without dipping into their lifetime exemption.
What the IRS changed for 2027 gifts
The IRS announced the new figure on November 5 in news release IR-2026-133, which covers adjustments to almost 70 tax provisions. “For calendar year 2027, the annual exclusion for gifts increases to $20,000, up from $19,000 for calendar year 2026,” the agency said. The full set of numbers is in Revenue Procedure 2026-35.
The same release raised two related limits. Gifts to a spouse who is not a U.S. citizen can reach $201,000 in 2027 before they count, up from $194,000. And the basic exclusion for estates of people who die in 2027 rises to $15,480,000, up from $15,000,000 this year.
What the gift limit does not cover: The higher annual exclusion keeps a gift off the gift tax return, but a retiree who pulls the money from a traditional IRA first still owes income tax on that withdrawal in 2027. The account withdrawal order in The Retirement Tax & Withdrawal Planner sets out which account to tap first so a gift adds as little taxable income as possible.
How the $20,000 per-recipient limit works
The exclusion applies to each person who receives a gift, not to the giver’s total. The IRS gift tax FAQ gives the example of a parent who gives each child the annual amount: the exclusion covers each of those gifts separately. A grandmother with five grandchildren could give each of them $20,000 in 2027, or $100,000 in all, and none of it would count as a taxable gift.
Each spouse gets a separate exclusion, so a married couple can give up to $40,000 to one person. The giver, not the person receiving the money, is generally responsible for any gift tax. Making a gift does not ordinarily affect federal income tax, the IRS says, and the giver cannot deduct it on an income tax return unless it is a deductible charitable contribution.
For example, a couple who gives a grandson $40,000 toward a house in March 2027 has a gift that stays within both spouses’ exclusions. If one spouse writes the whole check from an individual account, the couple would need to elect gift splitting on a return to treat it as two $20,000 gifts.
When a gift tax return is still required
Going over the limit does not usually mean tax is due. It means paperwork. According to the Form 709 instructions, a person who gives someone other than a spouse more than the annual exclusion in a year must generally file a gift tax return, whether or not any tax is owed. The excess is then counted against the giver’s lifetime exemption, which for 2027 is tied to the $15,480,000 estate figure.
The instructions add several traps. Spouses cannot file a joint gift tax return; each files a separate Form 709. A couple that wants to split a gift must file to make that election even when the amount is small. Gifts of a future interest, such as some transfers to trusts, do not qualify for the annual exclusion at all. The return for a 2027 gift is due April 15, 2028.
Gifts that never count against the limit
Some payments sit outside the $20,000 cap entirely. The IRS lists tuition or medical expenses paid for someone, gifts to a spouse who is a U.S. citizen and gifts to a political organization as generally not taxable gifts.
The catch is how the money moves. The Form 709 instructions say the medical exclusion applies only when the payment goes straight to the doctor, hospital or other care provider, and the educational exclusion covers only tuition paid directly to the school. Money handed to a grandchild to cover books, room and board, or a hospital bill counts toward the $20,000 limit instead.
The tax bill that comes before the gift
For many retirees the bigger tax question is where the gift money comes from. The IRS says in Publication 590-B that distributions from a traditional IRA are generally taxable in the year they are received and are taxed as ordinary income. A $20,000 IRA withdrawal used for a gift raises the giver’s own taxable income for 2027, even though the gift itself is excluded.
The common mistake is assuming “tax-free gift” means the whole transaction is tax-free. It applies only to the gift tax side. The IRS offers electronic filing of Form 709, and its e-help desk is at 866-255-0654 for filing questions.
Funding a family gift from retirement accounts
The higher 2027 exclusion tells a grandparent how much can go to each grandchild without a gift tax return. It says nothing about the income tax on the IRA, 401(k) or brokerage withdrawal that pays for the gift, and that withdrawal can also push up the share of Social Security that is taxed.
The Retirement Tax & Withdrawal Planner includes the account withdrawal order and a provisional income calculator for checking how a planned withdrawal changes taxable income before the money leaves the account.
Compare withdrawal sources in The Retirement Tax & Withdrawal Planner.
This article was created with AI assistance and reviewed for accuracy against Internal Revenue Service news releases, guidance and publications.
Julian Harrow specializes in taxation, IRS rules, and compliance strategy. His work helps readers navigate complex tax codes, deadlines, and reporting requirements while identifying opportunities for efficiency and risk reduction. At The Daily Overview, Julian breaks down tax-related topics with precision and clarity, making a traditionally dense subject easier to understand.
